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IBERIAN DAILY 16 JULY + 2Q’21 RESULTS. HIGHLIGHTS AND REST OF PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BANKING SECTOR, CAF, FERROVIAL, LAR ESPAÑA, NATURGY, SANTANDER, TOURISM SECTOR.

At the end of today’s report, and during the entire results season, we will include a presentation with positive and negative results highlights and previews for the 2Q’20 results to be released over the coming days in Spain.

MARKETS YESTERDAY AND TODAY

New profit taking
European stock exchanges saw drops of around -1% (and the peripheral segment to a slightly greater extent) after China’s growth moderated. In the Euro STOXX, the only sector with gains was Chemicals while Food showed the lowest drops, in the rest of industries, Retail and Energy saw the biggest drops. On the macro side, in the US, weekly jobless claims fell more than expected while June’s industrial output rose less than expected, in line with the indications shown by the orders/inventory ratio of the ISM index. In his speech before the Senate, J. Powell repeated the message from the previous day, linking the beginning of the tapering to meeting the job targets. In Japan, the BoJ kept its monetary policy unchanged but announced a series of measures to support debt issuances and green financing (purchasing foreign green bonds and funds from banks at a zero rate for green loans, among other things). In US business results, Bank of New York, US Bancorp and Morgan Stanley beat expectations.
European stock markets would move slightly upward, with better performance from value (underpinned by a slight rise in yields) and the tourism sector supported by the news of negotiations between Biden and Merkel for the US to lift the ban on European travellers. Currently, S&P futures are up +0.05% (the S&P 500 ended virtually flat vs. its price at the closing bell in Europe). Volatility in the US increased (VIX 17.01). Asian markets are falling (China’s CSI -0.4% and Japan’s Nikkei -0.33%).
Today in the euro zone we will learn June’s final inflation, in the US June’s retail sales and May’s business inventories. In US business results, Kansas City, Charles Schwab and State Street, among others, will release their earnings.


COMPANY NEWS

TOURISM SECTOR
Yesterday, after his meeting with German chancellor Angela Merkel, Biden mentioned that his advisors are studying the possibility of lifting travel restrictions to Europe. A final decision is expected to be announced in the next few days.
Separately, the Netherlands have taken the Canary and Balearic Islands out of their safe destinations list. This would force citizens that have not been fully vaccinated to present a negative diagnostic test on their return (PCR or antigen).
If the end of the US-EU travel restrictions is confirmed, this would be very good news for the tourism sector, especially for IAG (the stock is trading -62% below pre Covid levels and has fallen by -23% since 2021’s highs), where the US market accounts for 17% of sales in a normalised year and 30% of its capacity. This geographic segment is particularly relevant due to British Airways’ leading position in the North Atlantic, as it has higher unit revenues (thanks to a greater weight of the business segment), and therefore, higher returns backed by business travel. Moreover, the positive decision should back our forecast of strong traffic recovery starting in 3Q’21e (we estimate ASKs at 60% in 3Q’21e vs. 3Q’19, whereas in 1Q’21, ASKs totalled 20%).
We see a smaller impact on Meliá, where US tourists account for 9% of EBIT and which already prices in a favourable scenario (SELL), standing only -31% below pre-Covid levels. For NH the impact is marginal considering its urban hotel business model.